ECON 2101 Test 4 Review
What is a banking panic
A situation in which many banks experience runs at the same time
Fiscal policy refers to changes in
Federal taxes and purchases that are intended to achieve macroeconomic policy objectives
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase
Government purchases
Congress and the President carry out fiscal policy through changes in
Government purchases and taxes
The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of __________, it also can achieve the goal of _____________ simultaneously
High employment, economic growth
Which one of the following is NOT one of the monetary policy goals of the fed?
Reduce Income inequality
The Federal Reserve's two main monetary policy targets are
The money supply and Interests rates
Which of these variables are the main monetary policy targets of the fed
The money supply and the interest rate
The federal government debt equals
The total value of US treasury bonds outstanding
What is the Fed's "dual mandate"
The two most important goals of the Fed are maintain price stability and high employment, stated in the Employment Act of 1946
The largest and fastest - growing category of federal government expenditures is
Transfer payments
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is _______ so the quantity of money demanded will ________
low; high
Changes in taxes and spending that happen without actions by the government are called
Automatic stabilizers
The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of
Automatic stabilizers
The increase in the amount the government collects in taxes when the economy expands and the decrease in taxes when the economy expands and the decrease in the government collects in taxes when the economy goes into a recession is an example of
Automatic stabilizers
Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
Decrease
An increase in individual income taxes _________ disposable income, which ________ consumption spending
Decreases, Decreases
Monetary Policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives
The Federal Reserve's four goals of monetary policy are
Price stability, high employment, economic growth, and stability of financial markets and institutions
To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac
Sell bonds to investors and use the funds to purchase mortgages from banks
Government transfer payments include which of following
Social Security and Medicare programs
Government transfer payments include which of the following
Social security and Medicare programs
How does the Fed act to help prevent banking panics
The Fed acts as a lender of last resort, making loans to banks so that they can pay off depositors
Which of the following would be classified as fiscal policy
The federal government cuts taxes stimulate the economy
For the federal deficit to be lowered
The federal government's expenditures must be lower than its tax revenue
For the federal deficit to be lowered
The federal governments expenditures must be lower than its tax revenue
If the price level decreases
The money demand curve shifts to the left
If real GDP increases
The money demand curve shifts to the right
An increase in the interest rate causes
A movement up along the curve
The federal funds rate is
The interest rate that banks charge each other for overnight loans
The interest rate that banks charge other banks for overnight loans is the
federal funds rate
Which of the following is one of the monetary policy goals of the Federal Reserve?
Price stability
Contractionary Monetary Policy on the part of the Fed results in
A decrease in money supply, an increase in Interest Rates and a decrease in GDP
If the government cuts taxes in order to increase aggregate demand, the action is called
A discretionary fiscal policy
To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the
Budget deficit or surplus as a percentage of GDP
Who carries out fiscal policy
Congress and the President
Expansionary monetary policy refers to the _________ to increase real GDP
Federal Reserve's increasing the money supply and decreasing interest rates
Which of the following would be classified as fiscal policy
Federal taxes and purchases that are intended to achieve macroeconomic policy objectives
An increase in government purchases will increase aggregate demand because
Government expenditures are a component of aggregate demand
An increase in government purchases will increase aggregate demand because:
Government expenditures are component of AD (aggregate demand)
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy the economy back to long-run aggregate supply? an increase in
Government purchases
Which of the following is an objective of fiscal policy
High rates of economic growth
Using the money demand and money supply model, an increase in money demand would
Increase
An increase in the interest rate
Increases the opportunity cost of holding money
Expansionary Fiscal policy involves
Increasing government purchases or decreasing taxes
Expansionary fiscal policy involves
Increasing government purchases or decreasing taxes
The Fed uses policy targets of interest rate and/or money supply because
It can affect the interest rate and money supply directly and these in turn can affect unemployment, GDP growth, and the price level
What do economist mean by the demand for money
It is the amount of money - currency and checking account deposits - that individuals hold
Which of the following would NOT be considered an automatic stabilizer?
Legislation increasing funding for job retraining passed during a recession
Which of the following would not be considered an automatic stabilizer?
Legislation increasing funding for job retraining passed during a recession
What is the advantage of holding money
Money can be used to buy goods, services, or financial assets
An increase in real GDP can shift
Money demand to the right and increase the equilibrium interest rate
What is the disadvantage of holding money
Money, in the form of currency or checking account deposits, earns either no interest or a very low rate of interest
An economic expansion tends to cause the federal budget deficit to _______ because tax revenues ______ and government spending on transfer payments _______
decrease; rise; fall
